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Federal Medicaid outlays are expected to drop by about $84 billion as a
result of the U.S. Supreme Court's recent decision allowing states to opt out of
the program's expansion, while the House's recent repeal of the entire health
reform law would increase the federal deficit by some $109 billion over 10
years, according to two new estimates released July 24 by the Congressional
Budget Office.

The two estimates issued by CBO and the staff of the Joint Committee on
Taxation provide updates on the costs of the Patient Protection and Affordable
Care Act in light of the Supreme Court's June 28 decision making PPACA's
Medicaid expansion voluntary among the states (125 HCDR, 6/29/12), and the July
11 repeal of PPACA by the House (133 HCDR, 7/12/12).

On the Medicaid expansion,
federal spending would decrease by about $84 billion over the 2012-2022 period
because an undetermined number of states will decide not to participate in the
joint federal-state health care program for the poor, the CBO report said.

The report does not attempt to predict the number of states
that might opt out of the Medicaid expansion.

The report does not attempt to predict the number of states that might opt
out of the Medicaid expansion. Rather, CBO said its estimate reflected a
“middle” distribution of possible outcomes, including the number of people in
different income groups residing in the states.

The estimated direct spending and revenue effects of the repeal of PPACA
under H.R. 6079, the repeal measure which passed the House but is unlikely to
proceed in the Senate, would result in a net increase in the federal budget
deficit of $109 billion over the 2013-2022 period, the CBO report said.

In February 2011, CBO estimated that PPACA as enacted would reduce the
deficit by $210 billion over 10 years. CBO said the repeal cost estimate
reflects changes in PPACA and the economic outlook since then.

More Uninsured With Medicaid Change.

Because it is unlikely all states will participate in the Medicaid expansion,
scheduled to begin in 2014, federal spending in Medicaid and the Children's
Health Insurance Program (CHIP) is expected to drop, leaving some 6 million
fewer adults and children insured under those programs than originally
estimated, CBO said.

At the same time, federal spending on subsidies for people to obtain
insurance on new state-based insurance exchanges will increase because some of
those no longer eligible for expanded Medicaid and CHIP will be eligible for
exchange subsidies, CBO said. About 3 million more people than originally
expected will be able to obtain federal subsidies to purchase insurance on the
exchanges, CBO projected.

Overall, the net spending on Medicaid and federal exchange subsidies would
reduce the number of people without health insurance by 30 million by 2022,
leaving 30 million uninsured by that time, CBO said. Before the court's
decision, CBO estimated there would be 27 million uninsured by 2022.

Spending Shifts From Medicaid to Exchanges.

Federal spending on Medicaid and CHIP over the 2012-2022 period is now
estimated to be $289 billion less than previously expected, CBO said, whereas
the estimated costs of tax credits and other subsidies on the exchanges has
increased by $210 billion. Adding in some smaller reductions in spending
totaling about $5 billion, the CBO estimate shows a net reduction in federal
spending over the 10-year period of $84 billion.

According to CBO's estimate, the average amount of federal subsidies on the
exchanges has increased because the additional enrollees resulting from the
Supreme Court's decision will have lower average incomes than those previously
expected to purchase insurance on the exchanges. They are also likely to spend
more on health care, CBO noted.

Under PPACA, the Medicaid expansion will cover people with incomes up to 133
percent of the federal poverty level. To be eligible for subsidies on the
exchanges, individuals and families must have incomes between 100 percent and
400 percent of the FPL and have access to no other insurance.

Newly eligible Medicaid enrollees living in states not participating in the
Medicaid expansion will be eligible to receive subsidies on the exchanges if
they have incomes between 100 percent and 400 percent of the FPL, leaving some 3
million people with incomes below 100 percent of FPL without any coverage, CBO
noted.

Commenting on the CBO estimate, Bruce Siegel, president and CEO of the
National Association of Public Hospitals and Health Systems, said in a
statement: “The combined impact of more uninsured and significantly reduced
support for uncompensated care--reductions premised on a broader expansion of
Medicaid than seems likely now--will sorely strain the capacity” of the
hospitals.

Repeal Would Increase Deficit, CBO Says.

In a separate estimate on the costs of repealing PPACA, CBO in a letter to House Speaker John
Boehner (R-Ohio) said the federal deficit would increase by about $109 billion
over the 2013-2022 period. The savings generated by not having to pay for
expanded Medicaid coverage or exchange subsidies “would be more than offset by
the combination of other spending increases and revenue reductions,” CBO
said.

In particular, CBO noted, repealing PPACA would result in lower revenues by:

• eliminating
penalty payments by individuals who did not obtain insurance coverage;

Medicare Spending Would Increase.

In addition, the CBO letter noted that spending for Medicare would increase
by an estimated $716 billion over 2013-2022 as a result of:

• repealing
the reductions in the annual updates to Medicare's payment rates for
providers;

• repealing
the new mechanism for setting payment rates in the Medicare Advantage program;
and

• repealing
the reductions in Medicaid and Medicare payments to hospitals serving a large
number of low-income uninsured.

“Projections of the budgetary impact of H.R. 6079 are quite uncertain,” CBO
cautioned, “because they are based, in large part, on projections of the effects
of the [law], which are themselves highly uncertain.”

Moreover, H.R. 6079 does not explain how parts of the law that were changed
by PPACA would be restored “as if the [law] had never been enacted,” CBO noted.
“Because of that ambiguity, H.R. 6079 would cede considerable discretion to the
executive branch to implement its provisions,” CBO said.

Commenting on the CBO letter to Boehner, House Democratic Leader Steny Hoyer
(D-Md.) said in a statement: “These numbers tell a powerful story: the health
reform legislation we passed in the Democratic-controlled 111th Congress is
achieving the goals of expanding access to insurance coverage and controlling
the growth of costs for Americans' care.”

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